457B Forced Liquidation

[Guest heinie]

Hello:

I received a certified letter from my employer ( a non-profit hospital) stating that as of June 30, 2009 I must liquidate my 457B that is invested through a private brokerage (Schwab). The letter states that I will then have to move the assets to funds that the hospital has set up through another brokerage account.

The hospital allowed me to elect to move my investments to the Schwab account, now they are saying that they may be in violation with the IRS and I must liquidate.

As it stands right now, that would equate to about a $5,000 loss. Who knows what the market will be like in June?

My questions are:

1) Is it legal for the hospital to force me to liquidate my 457 and move it into there funds as they stated?

2) If I do not comply, can they remove the funds from my Schwab brokerage account without my consent?

3) Is there any way to recoup the paper loss when the forced liquidation occurs?

Any help in this matter would be greatly appreciated. The next call is to the tax attorney :angry: .

[QDROphile]

If you really want to know the legal side:

Unless the nonprofit hospital is a government entity or instrumentality, you don't have any 457(b) assets. All you have is promise of the employer to pay you in accordance with the terms of the plan. The assets associated with the plan belong to the employer, but the employer has probably been following your instructions about how to invest and the plan probably says that what you ultimately get paid will be based on the investment results of your investment instructions. Whether or not the terms can be changed depends on the terms of the plan. It is likely that the investment provisions can be amended without your consent. This explanation is probably not your understanding of the arrangement. If the employer shared your misunderstanding and is actually behaving under the view that you describe, it is no wonder that the employer is trying to change things. You may have a lot more to worry about than a $5000 investment loss -- like current taxation of the deferred amounts. On the other hand, you may be simply describing the situation in a practical way rather than a technical way and it boils down to the issue of the rights you have under plan terms.

[Guest mjb]

Hello:

I received a certified letter from my employer ( a non-profit hospital) stating that as of June 30, 2009 I must liquidate my 457B that is invested through a private brokerage (Schwab). The letter states that I will then have to move the assets to funds that the hospital has set up through another brokerage account.

The hospital allowed me to elect to move my investments to the Schwab account, now they are saying that they may be in violation with the IRS and I must liquidate.

As it stands right now, that would equate to about a $5,000 loss. Who knows what the market will be like in June?

My questions are:

1) Is it legal for the hospital to force me to liquidate my 457 and move it into there funds as they stated?

2) If I do not comply, can they remove the funds from my Schwab brokerage account without my consent?

3) Is there any way to recoup the paper loss when the forced liquidation occurs?

Any help in this matter would be greatly appreciated. The next call is to the tax attorney :angry: .

Under the IRS regs the hospital must be the owner of any assets held in your account under the 457b plan. However the regulations permit you to chose investments by having the hospital set up an account with a mutual fund company or stock broker such as Schwab. The hospital is the owner of the account but agrees to allow you to direct the investment of your contributions which are held in the account by giving instructions directly to Schwab. If you read the terms of the hospital's agreement with Schwab it will be clear that the hospital is the owner of the account and can terminate the agreement at any time without liability to you. Therefore the answers to 1 and 2 are yes and the answer to 3 is no.